10 Year Rates Over 200 Sma

The yield on the 10 year has soared over the last few days as stocks have rallied and several fed officials have made very hawkish comments. Rates have now rallied from 3.45 to over 4.10 on the 10 year, a very significant move. Although they may continue to plough higher, I think it makes sense to take profits around this level.

Cover XLF

XLF is probably near a short term low as it approaches the 24.50 support level. Given that it has fallen from over 28 bucks to 24.64 in such a short period, I think it's a bit oversold and would look to cover any XLF short positions here.

DPS

Buy DPS (Dr. Pepper Snapple)

DPS's products are all staples with solid brand names that will continue to sell even in the face of a slowdown. Forced selling due to the stock's spin off from Cadburry has depressed the stock price in the near term leading to an opportunity to get long the stock. DPS sells at only a 13 PE while its peers (KO and PEP) sell at a 18 PE. This is a very wide disparity that should close soon enough. Although DPS does not have the international exposure of KO and PEP, the gap between valuations more than compensates for this.

I think that 25 dollars is a very reasonable price to get long the stock given the factors above.

XLF

Short XLF - The XLF was driven below its 50 sma, a level that has provided support over the past week or so, on news of Wachovia's reckless investments in a Citigroup hedge fund and estimate cuts for several investment banks. The XLF hasn't participated in the last part of the broad market rally and has looked relatively weak in past weeks. This action shows that banks (except USB, GS) still have no credibility and are in a good position to be sold off. Bad news was good news for a while, but sentiment has turned after a strong rally to the 200 sma has worn out and consolidation/pullback has become more likely. Given this shift, I don't think people will be willing to step into the weakest sector this early into a pullback giving the etf more downside from here.

Traderfeed and More

Dr. Steenbarger is waiting on several indicators to peak before calling an end to this rally. You can read his indicator review here.

Insider buying in Etrade indicates confidence in a turnaround from management. See here.

Quantifiable Edges has a hard time finding anything that would suggest we move higher near term.

Risk appetite grows as shown by Blackrock's purchase of subprime.

Also, another interesting blog I've found can be seen here.

Reality v. Gov't Data

I've posted three links that call into question the most recent CPI data. You can find them here, here, and here.

Start Selling ISRG

Sell ISRG against its 50 sma. ISRG got torched in April but found a low above its 200 sma. It has been treading higher since.

Solid News From Etrade

Check the link here.

Gap Up Catches Bears

Gap up may lead to further upside as bears get caught short.

The bulls seem to be in complete control here and the 200 sma looks like a logical target for the S&P (DJIA is already there) over the next week.

USB's Conservative Strategy Wins the War

Slow and steady is sexy in this market. While USB's limited exposure to subprime mortgages and structured finance products and 5% plus dividend would've made it a snoozer a few years back, it is certainly a solid candidate for investment now. Furthermore, a solid base has been put into this stock after Warren Buffet ventured into the name. That investment gave USB exactly what other financial stocks don't have: credibility.

The stock now seems to have put in a solid fundamental and technical base, opening the doors for an eventual rally after the choppiness subsides. As I've recommended before, look to buy this stock when it comes down to near, at or below its 200 sma. That level seems to be "golden", as it always pushes higher not too long afterwards.

ETFC's Back on its Feet

ETFC's current price of under $4 reflects an extreme level of distress that I think is unwarrented and should start to dissapate in the coming months. However, it does not seem that anyone else agrees with me! The stock currently has around a 20% short interest and tons of negative analyst coverage. I view this as a positive. It provides the fuel for a sharp turnaround in the stock price by making any less than terrible news seem positive.

While there are still challenges in front of the business, it seems that management has already done what is necessary to take bankruptcy off the table. This includes a 2.5 billion dollar cash infusion from Citadel Investments, raising cash through the sale of non-core assets, and reducing debt levels. Furthermore, they have also announced that they are exiting the retail mortgage origination business. The goal of these actions are clear: reduce risk and get back to basics. I believe that this strategy has already started to stabilize the business and will lead to further growth in the near future.

E-trade is not only taking steps to stabilize itself but also to grow as well. To jump start growth, E-trade's management has invested in advertising including a Superbowl commericial that received tremendous response. Although management has indicated that advertising was front loaded to the beginning of the year, these popular commercials continue to run and could continue to draw in new customers. Furthermore, while bankruptcy threats errode, old customers may come back on board in order to take advantage of E-trade's more advanced platform. It is clear, as even the CEO of Ameritrade recognized, that any customer's looking to leave E-trade have already done so, leaving ETFC looking at growth, not further customer losses.

E-trade is a strong brand that got mixed up in a nasty business. Although damage has been done, I'm confident management is on the right track and will lead the business to start regaining its once prominent role as a leader in the online brokerage community. The upside is wide open here while the downside looks to be fairly limited (It's hard to imagine further negativity). Thus, I think the stock is a buy at current levels.

Trend Upwards; Short Opportunity

A few thoughts...

-The fed cut didn't seem to matter very much to stocks. The spike after the announcement was an excellent time to get short for a trade. That action was clearly not sustainable. The market was already up so much before the decision and the news was not exactly earth shattering. In fact, it was pretty much exactly what the market expected. Hence, there was no reason for the extra spike higher, creating a terrific shorting opportunity.

-Financials made a lower high last week that I was surprised that no one really pointed out. It was an excellent buying point. They have since led all other sectors (with the exception of tech) during this rally.